The massive digital push initiated by the COVID-19 pandemic has been lucrative for data centres, which can still deliver an annual rental yield of 10-14%.
The key cities leading demand for data centres include Mumbai, Chennai, Bengaluru and Hyderabad, among others.
Shobhit Agarwal, MD & CEO – ANAROCK Capital says, "Currently, data centres in the top 8 cities occupy 7.5 mn sq. ft. space and an additional 10 mn sq. ft. space is likely to be added over the next 2-3 years. Immediately after India went into a lockdown mode due to COVID-19, there was a 25-35% increase in data centre capacity usage as companies began to overhaul their digital infrastructure to deal with the new work environment."
"The pandemic has been a massive catalyst for digital adoption across the spectrum," says Shobhit Agarwal. "Work-from-home (WFH) compulsions, online education, video-based medical consultations, a huge increase in ecommerce and business-related video conferencing and webinars are increasing the demand for data centres. Furthermore, the government's move to make data localization mandatory ensures a promising future for data centres in the country."
As per industry estimates, the data centre outsourcing market in India is worth more than USD 2 bn and is projected to grow at 25% CAGR to reach USD 5 bn by FY 2023-24. In fact, data centres are emerging as an alternative real estate asset class with huge potential, and leading real estate developers are zeroing in on this opportunity to reap superior returns from early investments.
Key Players in the Fray
Leading players like Adani Group, Hiranandani Group and Salarpuria Sattva have already rolled out significant investment plans for building data centres in India over the next decade and more.
Towards a Digital Future
India has embarked on a concerted digitization drive to improve efficiencies and generally make life easier for its citizens. Digital India – the flagship programme of the Government of India (GoI) – intends to transform the country into a digitally-empowered knowledge economy. There are significant growth drivers in place:
The future growth of various industries relies heavily on digitization, and a seamless transformation into Digital India is only possible with the creation of more data centres.
Until a few years ago, only a handful of data centre operators such as NTT-Netmagic, CtrlS and STT GDC operated in this space. Interestingly, these facilities were never seen as potential real estate assets, but rather as a complex mesh of wires providing connectivity to various internet users. Also, cloud computing was not yet a 'thing' in India. As such, the requirement for data centres was limited.
There has been a massive shift in perception now. Developers and investors are looking for new opportunities to diversify from the traditional business of residential, commercial and retail assets. Enabled by India's rapid transformation into a digital nation, data centres are set to become one of the most promising sunrise sectors heading for a rapid boom – powered by high growth rates and plentiful venture capital funding.
Shobhit Agarwal, is MD & CEO of ANAROCK Capital. He is a former managing director of JLL Property Consultants. ANAROCK Capital is the premier investment banking advisory division of ANAROCK Group - India's leading, fastest-growing and most disruptive consultancy in the industry.